Google’s Rules of Acquisition: How to Be an Android, Not an Aardvark

In the technology world, acquisitions so often go awry that it’s a wonder big corporations keep shelling out to buy smaller ones at all. Just look at disasters like News Corp’s acquisition of MySpace, eBay’s acquisition of Skype, or more recently, AOL’s acquisition of TechCrunch. Acquirers are so likely to overpay for their purchases, misjudge the potential synergies, or bungle the integration process that the majority of post-merger companies end up doing worse than their competitors, according to a litany of management studies.

But there are a few special tech companies where the executives seem to have figured out how to make acquisitions succeed—or at least, how to lower their failure rate. One of these is Google (NASDAQ: GOOG). In many of the markets where it’s now a huge player, Google got there through an acquisition: think of Keyhole (online mapping, 2004), Android (mobile operating systems, 2005), YouTube (user-generated video, 2006), Writely (online documents, 2006), Doubleclick (display advertising, 2007), AdMob (mobile advertising, 2009), and ITA Software (travel planning, 2010). Together, Google’s acquired companies generate billions of page views every day, along with the resulting ad profits.

Of course, some of Google’s acquisitions haven’t turned out so well. After buying Dennis Crowley’s startup Dodgeball in 2005, Google famously missed out on its opportunity to build a location-based social network; Crowley left to found Foursquare. Google paid $50 million for social search startup Aardvark in 2010, only to shutter the service a year later. And most of the key executives who joined Google through the 2009 acquisition of AdMob—a $750 million deal—have already left the company.

But given the pace of acquisitions at Google (48 in 2011 alone), there are bound to be a few derailments. Overall, Google has a remarkably good track record at getting what it paid for—and sometimes a lot more. David Lawee, the company’s vice president of corporate development, says two-thirds of Google’s recent acquisitions have been successful, based on measures such as employee retention and revenues from the acquired teams or products. That’s a far higher success rate than the industry average, which studies put at roughly one-third to one-half.

Success at M&A, though, didn’t come naturally. It was an acquired skill, so to speak—something the company only learned through practice as it grew. “Integration is a really well-honed process now,” Lawee says. “I certainly wouldn’t have said that four years ago. Four years ago we could get away with, ‘You are smart, figure it out,’ because it was a smaller business.”

I went down to the Googleplex last month to meet with Lawee (pictured above right) and find out how the company honed its process. I subsequently interviewed three other Google executives who either help to manage acquisitions or have recently joined Google through an acquisition. I wanted to know what Google has learned that other companies haven’t. How does it figure out which companies it wants to buy, and whether their technologies will fit with existing Google products? How does it smooth the transition for newly acquired teams? How do former startup founders stay productive—and entrepreneurial—once they’re inside a 32,000-employee company? And when Google acquisitions do go wrong, why?

Speaking from Experience

The acquired Googlers I’ve talked with say it’s a friendly place for people who bring the typical startup founder’s passion and ambition. If there’s a source for that friendliness—other than the fact that Google was so recently a startup itself—it’s probably Lawee, the guy at the top of Google’s M&A operation.

It’s not a stretch to say Lawee is uniquely qualified for his job. He spent three years running marketing and product launches at Google before switching over to corporate development, so he has an insider’s understanding of the company’s needs. But he’s also ex-entrepreneur and ex-venture capitalist, so he’s seen every side of the startup process. “I understand viscerally what it’s like to … Next Page »

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Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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  • Patrick

    Great article but I was looking forward to read about how Google manages the fact that in an acquisition the founders are generally leaders and now multi-millionnaires. I see it presenting many challenges such as position/title, reporting to many people instead of no one, pay scale that might be almost insignificant considering the new wealth, etc.. In your interviews did any information come up regarding those topics?

  • Patrick: That’s an excellent question. I confess I did not ask about it in my interviews. But based on my reporting, I can guess how David Lawee or the other folks I talked to might respond. I think they’d say that the founders who become acquired Googlers still act much like entrepreneurs, but that they no longer have the added worries and responsibilities of keeping a company afloat. They certainly have superiors to report to (hopefully just one or a few though, not many) and if they were really uncomfortable with that they would probably self-select out of being acquired. I can’t imagine that positions or titles are much an issue…Google seems to have a thick layer of engineering managers. As for pay scales, I know Google is competitive but not extravagant, and that stock/options come in the form of RSUs that vest only gradually, with lots of conditions to discourage early departures. The one big question you raise, which I am also curious about, is whether an acquired founder’s newfound wealth (assuming that their ownership portion of their old company was large enough to bring them a multi-million dollar payoff) puts them in a more independent, less teamwork-oriented frame of mind. It may, but I also have the sense that most of these people only join Google because it’s clear to them that they can accomplish more inside the company than on their own.

  • F Libit

    Great article. Makes me wonder though – who was Motorola Mobility’s “sponsor” inside google?